Breach of Contract
in Real Estate
If you’ve had a breach of contract in a real estate transaction or agreement, we’ve outlined what you need to know.
LloydWinter, P.C.
Understanding Types and Consequences
Contracts are legally binding agreements—not to be entered into lightly. Real estate contracts can be especially complex. But we’re only human, and mistakes can happen. So, what happens after a mistake leads to a breach of contract?
To understand this, you’ll need to learn more about the different types of real estate contracts, the different types of breaches, and what generally constitutes these breaches.
Table of Contents
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What Could Cause a Breach of Contract in Real Estate?
Plainly speaking, a breach of contract occurs when any party to a contract fails to fulfill their side of the agreement. To understand the severity of any given breach, you have to know what type of contract is being breached and what sort of breach it was. Generally speaking, there’s two types of real estate contracts that you’re likely to encounter in your life. These are property rental agreements and property purchase agreements.
Property rental agreements are typically breached as a result of improper property usage or treatment, an inappropriate termination of the lease agreement, or a failure on the part of one party to perform repairs that are contractually part of their responsibility.
Property purchase agreements, meanwhile, are typically breached because of more immediate reasons, such as a disagreement regarding closing costs, the failure of a mandatory property inspection or failure to disclose defects.
What are the Types of Breach of Contract in Real Estate?
When you’re talking about breaches of contract in real estate, there are four ways that a contract may be broken:
- minor breach of contract
- actual breach of contract
- material breach of contract
- anticipatory breach of contract.
Minor Breach of Contract - Real Estate
A minor breach of contract in real estate happens when one party follows the contract almost to the letter but misses one specific responsibility listed in the contract. A minor breach can even take place even if the end result is that the other party ends up getting what they wanted anyway—despite the minor breach.
It’s rare that these minor breaches end in any kind of financial loss, as they’re generally inconsequential. For example, if you made a deal with a roofing contractor to pay for them to build a house with specific materials on your real estate project, but some of these materials were practically impossible to purchase to fulfill the agreement—it’s still a breach of contract.
Often in these cases, the roofer might have even used higher-quality materials. If the roofer used similar-quality materials, you might argue a minor breach of contract because you had your heart set on a particular brand that you always liked. Given that the use of the wrong materials resulted in little to no damage caused by this type of breach, you might be upset, but you probably wouldn’t take the contractor to court over it.
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Actual Breach of Contract - Real Estate
An actual breach of contract occurs when one party doesn’t uphold their end of the deal resulting in real negative consequences or damages, regardless of why they ended up not holding up to their end of the deal. For example, if a property owner signed a contract saying that they would sell a property but then ended up refusing to sell the property because they had a change of plans in their life — such as a job fall through or a marriage dissolve, that’s still an actual breach of contract!
This type of breach is a much bigger deal. And since an actual breach can result in significant damages, you’d be well within your rights to find an attorney and file a lawsuit for breach of contract.
If you’ve experienced an actual breach of contract, your contract attorney will help you compare the likely cost of the lawsuit to the amount of money that you’re likely to recover if you win the lawsuit. That will help you decide whether you want to pursue litigation or if arbitration might be a better option for you.
Material Breach of Contact - Real Estate
A material breach of contract occurs when one party ends up getting something significantly different than they expected when signing the contract. Damages caused by this type of breach are typically easy to prove. If you’ve suffered an obvious and clear loss in a real estate transaction, you’d be well within your rights to file a lawsuit, and you won’t have much difficulty finding a litigation attorney to help you.
For example, if you’re a general contractor and one of your contractors agreed to replace a load-bearing wall in a home you were fixing up, but they opted to just repair the wall — that is a massive material breach of contract. Plus, if you had the wall replacement contract with the homeowner, if they discovered that your subcontractor did not replace that wall, they would consider you in breach of contract!
That could be a best-case scenario… Imagine what would happen if you left the irresponsible subcontractor’s load-bearing wall and didn’t hire a different contractor to do the job properly and the roof was damaged. You would have a massive lawsuit on your hands.
Anticipatory Breach of Contract - Real Estate
An anticipatory breach is when you can reasonably expect damages to occur in the future, but they haven’t yet. This could be because someone is doing such a poor job of staying on a timeline, there’s no feasible way for them to complete the job on time and you will suffer damages.
Maybe you had a deal to move into a new suite to begin setting up for your business. You have a signed rental agreement with terms agreed upon, but now — one week from move-in — the landlord isn’t calling you back and the previous tenant is still in the suite. This could be considered an anticipatory breach.
To be clear: whether explicitly said or not, admitting to the intention to not fulfill your side of a contract can result in an anticipatory breach.
